During the past two days of my work commute I looked at Ryan Mallory’s The Part-Time Trader: Trading Stocks as a Part-Time Venture (Hoboken, NJ: John Wiley & Sons, 2013). Mallory runs the website SharePlanner.com. He was once a contracts manager for a Fortune 500 company. Much of the book deals with office politics reminiscent of The Office television series and the film Office Space which both Mallory and Venkatesh Rao like. Reading The Markets’ Brenda Jubin has a good summary of the book’s key points.
Mallory’s preference is to transition from a part-time trader whilst at work to becoming a full-time trader. This transition appeals to the United States trader subculture hence Wiley’s publishing contract for the book. What matters here is the dream image or ideal — the Ka to the ancient Egyptians — where Mallory mentors his readers to make this transition.
I am starting to form a different view to Mallory’s preference.
First, you have to treat the popular trading literature as a form of ideology about capital flows and financialisation. Mallory is best when he gives advice on heuristics: don’t look at profit/loss during a trade because this creates anchoring and representativeness biases, for instance.
Second, you have to screen out or at least ‘reality check’ the aspirational dialogue about becoming a full-time trader. Most brokerage accounts are under-capitalised and ‘blow up’ in 6 to 18 months of trading. The existence of subscription-based services like Mallory’s site hides this pattern. It also obscures the importance of survivorship bias when assessing trading records. Texan author Don Webb’s insight that occulture involves “selling water by the river” also applies to some trading books and overlaps with the entrepreneurship literature.
Third, the decision to trade full-time involves an emphasis on success in the present over long-term financial compounding. This affects both future salary and superannuation entitlements. You really need an edge and positive expectancy in your trading system. You need to be clear on what your alpha is (excess returns adjusted for risk and actively managed) and from whom it is being extracted from. These are critical details that Mallory understandably omits — but they are just as critical as specific trading set-ups.
Fourth, changes that include a mix of sustaining and disruptive technologies, and new market microstructure, affects Mallory’s advice. You can now trade on a mobile phone for intraday and swing trading, rather than relying on monitor privacy and flying ‘below the radar’. Constant monitoring of markets can create high transaction and execution costs, and can affect taxation. This is where the ideology or image of popular trading can become self-defeating when compared with proprietary, fund management, or institutional strategies.
Fifth, in the next 5-to-15 years there will be brokerage level versions of popular market algorithms and machine learning capabilities. These quantitative frameworks and tools — which exists for institutional traders yet not for retail traders — will disrupt many of the small capitalised, full-time traders who are the book’s audience. One of the key ways to also track this is the size of margin loan lending conducted in the major brokerages.
Mallory’s book was useful to think through these observations and to develop a different personal strategy.
For starters, I look more closely now at the optionality or upside potential of research programs.